WISE investors know that winning bets shine more brightly if they are not overshadowed by big loss-making trades. The way in which capital flowed to and from emerging markets in recent years meant that such discrimination went out of the window. Now, however, change is coming.
Two influences in particular are behind this. The first is the retreat by America’s Federal Reserve from ultra-loose monetary policy. Cheap credit gave good and bad economies alike a boost; as its effect fades, capital allocation will become more disciplined. The peculiar traits of each emerging market, from macroeconomic management to productivity growth, will have a greater say …